Requirement for registration of all residents above 18 years with Commissioner General of Inland Revenue

The Government is committed to achieving revenue mobilisation efforts in 2024 beyond by introducing further reforms, with the aim of raising the tax-to-GDP ratio to at least 14% by 2025. Sri Lanka has already shown significant commitment with the implementation of substantial tax policy enhancement in 2022 and 2023. Considering the progress of reforming the tax policy, it is necessary to further increase the tax revenue and tax administration measures will play a major role in achieving the desired.

Tax evasion is a major problem in meeting potential tax revenue targets. The 2023 National Budget recognised this as a problem and introduced several measures that were later enacted into law. The 2022 Interim Budget presented to the Parliament of Sri Lanka also emphasised that the tax administration should play a key role in increasing tax collection efficiency, strengthening tax compliance and preventing tax evasion in order to increase tax revenue. Accordingly, interim Budget 2022 proposed to introduce compulsory tax registration for all residents who are above 18 years of age without considering their annual income and tax-free thresholds.  

Income Tax chargeability

Income Tax is imposed in terms of the provisions of the Inland Revenue Act, No. 24 of 2017 (IR Act). According to Section 2, income tax is payable on: 

(a) taxable income; and 

(b) final withholding payments.

IR Act provides rules for calculating taxable income for a year of assessment. Year of assessment is the period of 12 months commencing on the first day of April of any year and ending on the 31st day of March in the immediate succeeding year.

Taxable income is defined in section 3 of the IR Act to comprise four heads of charge, namely: (a) assessable income from employment; (b) assessable income from business; (c) assessable income from investment; and (d) assessable income from other sources. Sections 5 to 8 of the IR Act particularise what is to be included and excluded in determining one’s income from employment, income from business, income from investment and income from other sources. 

Section 88 of the IR Act sets out the types of payments that are final withholding payments. Amounts withheld on final withholding payments discharges the recipient’s tax liability completely.

Resident individuals are entitled to a basic relief (personal relief) which is the amount of Rs. 1,200,000 for each year of assessment. The relief may be deducted against the assessable income of an individual (resident or Sri Lanka citizen) except to the extent that the assessable income comprises gains from the realisation of investment assets.

Registration requirements

According to Section 102 (1) of the IR Act, every person is liable to furnish a “return of income” for a year of assessment, and who has not already registered, shall register with the Commissioner-General not later than 30 days after the end of the basis period for that year” (basis period means the year of assessment). According to Section 93 of the IR Act, “Subject to section 94 and subsection (2), every person shall file with the Commissioner-General not later than eight months after the end of each year of assessment a return of income for the year”. However, Section 94 (1) of the IR Act excludes certain persons from the filing of return of income. 

Notwithstanding subsection (1) of Section 94, the Commissioner- General may serve a notice in writing on a person requiring the person to file a return of income. Therefore, return of income shall be filed by any individuals who has a taxable income and other individuals who have received notice from the Commissioner General to file a return of income whether such person has a taxable income for a year of assessment or not.

Accordingly, it is a statutory requirement for any person who is liable to file a return of income, to register with the Commissioner General in terms of Section 102(1) of the IR Act. When a person is registered with the Commissioner General, such person is assigned a Taxpayer Identification Number (TIN).

Further, there is a mandatory requirement to file a return of income for individuals who has a taxable income. But when the person has no any taxable income, there is no need to file a return of income even if he is registered with the Commissioner General unless such person has been served a notice to file a return of income by Commissioner General. Generally, the Commissioner General serves a notice to a person who is registered for Income Tax Type and, therefore, such person has to file a return of income whether he has any taxable income for the relevant year of assessment or not.

Statutory background of the Gazette 

The Minister of Finance with the consent of the Commissioner-General has prescribed the “additional classes of persons” in Gazette No.2334/21 Dated 31.05.2023 for registration purposes exercising the power conferred under Section 102(3) of the IR Act. The IR Act used the word “additional” to indicate that it is in addition to the general requirement. In other words, in addition to the persons required to be registered under Section 102(1) of the IR Act, Section 102(3) permits the Finance Minister to add some other persons to register with Commissioner General. The IR Act uses the word “additional” at various places to mean “in addition” to the general requirement.

For an example, Section 68(1) imposes “additional” tax on three percent of amounts received in each year of assessment by way of grant, donation or contribution or in any other manner for non-Government organisations. That additional tax is in addition to the income tax imposed under Section 2 of the IR Act applicable to all taxpayers including non-Government organisations. Further, Section 126(6) permits Assistant Commissioner to require a taxpayer to file an “additional return”, even if such taxpayer has filed a return of income. That additional return is an additional requirement “in addition” to the regular tax return filing requirement. 

This can be further understood by referring to the sections of IR Act where the applicability of the section is limited specifying certain class of persons. For an example, Section 92(1) of the IR Act, permits the Commissioner General to specify the class of instalment payers who are not required to furnish an estimate under Section 91. It is not “additional classes” of instalment payers but the Commissioner General has to specify classes within instalment payers or exclude certain classes of instalment payers from the estimate requirement. Therefore, it is clear that the word “additional” has been used in the IR Act to make addition to the general requirement and accordingly for the purpose of section 102(3), it is not necessary to specify the classes of persons who are falling within the ambit of section 102(1).

On the other hand, Section 103(2) (d) of the IR Act facilitates assignment of TIN to a person who is not a taxpayer (Section 195 defines the term “taxpayer”) but is required to register as per Sec. 102(3) of the IR Act. It states that a TIN may be assigned by the Commissioner General to a person who is not a taxpayer but is required to register under sub-section (3) of section 102. This ensured that the intention of Section 102(3) is to obtain TIN registration by persons who are not required to pay tax under the provisions of the IR Act.

These types of delegated legislations are required for a tax statute as the need to change detailed provisions from time to time would be an impossible burden on Parliament, as changes would always require the introduction of new laws. The provisions of the new IR Act have already considered these requirements and delegated powers to the Finance Minister and the Commissioner General in various provisions. This Gazette does not impose income tax on any person. Income tax is levied only under the provisions of the IR Act. The Gazette has only introduced a requirement to obtain a TIN (Taxpayer Identification Number) from the Commissioner General.

Classes of persons

Section 195 of the IR Act defines “person” to mean an individual or entity and includes a body of persons corporate or unincorporate, an executor, non-Governmental organisation and charitable institution. Unless the context otherwise required, that definition is applicable for the purpose of the IR Act. Further, “person” is a broader term used in the IR Act and under the “person”, there are individuals, companies, friendly societies, a Government but excluding the Sri Lankan Government, a political sub-division of a Government, or a public international organisation, partnerships, trusts, charitable institutions, non-Governmental organisations, superannuation funds, etc. Accordingly, the definition of person treats individual taxpayers as separate taxable units. From that taxable units, different classes can be identified as residents, non-residents, citizens, non-citizens, classes based on the age of individuals, etc. 

The IR Act treats all individuals equally without discrimination whether they are below 18 years of age or above 18 years of age. However, Section 146 specifies the person who is the representative for income tax compliance purposes, is if the person is a person under legal disability. The guardian or manager who receives or is entitled to receive income on behalf of, or for the benefit of, that individual is the representative. Therefore, from the term “person”,  any resident individual who is at the age of 18 years or more as at 31 December 2023, or who attains the age of 18 years on or after 1 January 2024, after attaining the age of 18 years can be distinguished as “classes of persons” from the person defined under the IR Act. Simply, Part-B of the Extraordinary Gazette Notification divides resident individuals into two classes for TIN registration purposes. The first is individuals over the age of 18 and the second is individuals under the age of 18. First class is selected for TIN registration as explained above.

When the Finance Minister with the consent of the Commissioner-General specified classes of person for registration purposes, such classes of persons are required to get the TIN from the Commissioner General. 

These type of gazettes have been issued by other tax administrators in different Jurisdictions for different purposes. For an example, our neighbour country India has specified classes of persons as different ways for different purposes and those classes are sometimes covered wide range of person similar to the Gazette No.2334/21 dated 31.05.2023 issued in Sri Lanka. 

Finally, all resident individuals who are at the age of 18 years or more as at 31 December 2023, or who attain the age of 18 years on or after 1 January 2024 are advised to get their TIN registration through formal channels opened in this regard. For more information log on to the Inland Revenue Web Portal www.ird.gov.lk or call the hotline 1944.

(The writer is Senior Deputy Commissioner at Inland Revenue Department.)